Costs budgeting – the way forward?

Despite being the focus of the Mitchell case, costs budgeting on multi track cases has been one of the less heralded of the Jackson reforms.

Despite being the focus of the Mitchell case, costs budgeting on multi track cases has been one of the less heralded of the Jackson reforms. However, over a year after their introduction, despite initial uncertainty from the courts, they have become a great opportunity for defendants, if used correctly.

In the past, one of the major complaints of paying parties was the often disproportionate nature of the opponent’s costs and also the almost impossible task of reserving accurately. Costs budgeting involves both parties recording the costs already incurred prior to the first Costs Case Management Conference (“CCMC”) and also estimating the costs for the remaining stages of litigation. The document used for this is a spreadsheet known as “Precedent H”. The parties are then encouraged to debate the future costs and to try to reach agreement, wherever possible, before the court assesses the balance at the first hearing.

The estimates for each particular stage are based on assumptions completed by the parties. The court has recently underlined the necessity for these to be provided as without them the court is unable to accurately compare and assess the likely costs. Weightmans were involved in a case recently where the claimant’s costs were limited to the court fees as they had failed to complete the assumptions.

There has been avoidable confusion regarding the timing of the service of costs budgets. The new version of the Directions Questionnaire suggests the costs budget should be sent with it, whereas the Civil Procedure Rules state that unless there is a notice from the court, it needs to be served 7 days before the first CCMC.

Thankfully, the County Court Money Claims Centre now prescribes that the costs budget is filed and served along with the Directions Questionnaire (the approach that was being taken by Weightmans in any event). Getting this wrong can prove disastrous as was seen in the Mitchell case. However, recent decisions suggest that the court (and therefore the parties) may be becoming more tolerant.

The court effectively provides a cap for profit costs and disbursements for each stage of the litigation process. The court will not enquire into the time already incurred by the parties. Obviously, the claimant will generally have incurred significantly more time than the defendant by the time of the CCMC. Therefore, to avoid scrutiny at the hearing, some claimants may frontload their recorded time and argue that they were simply being prepared for litigation. However, where appropriate, we insist that the claimant provides a breakdown of the incurred time as this clearly informs the additional costs for the remaining stages of litigation.

We have also been able to record in directions the judge’s views on costs already incurred which is very useful when costs are ultimately agreed or assessed. All of the claimant’s costs will still be subject to assessment at the conclusion of the case, but it will be difficult to argue that costs within a costs budget were incurred unreasonably. Equally however, a claimant seeking costs in the excess of their costs budget will face an uphill struggle.

We are seeing some excellent results at the CCMC stage in reducing claimants’ budgets. A crude approach would be for the defendant to pitch their budget low to contrast with the claimant’s figures, particularly given the impact of Qualified One Way Cost Shifting. However, we caution against this approach as it is unlikely to fool judges who are fast developing their costs knowledge and is likely to result in a loss of credibility before the court which could prove expensive.

In addition to the significant savings on indemnity spend, costs budgeting also allows for much more accurate reserving with the obvious cash flow benefit. Further, from a tactical point of view, claimant solicitors who do have traditionally not focused on compromise and adopted a meandering path to trial will no longer be rewarded in costs. We have already seen opponent’s resolve weaken in the aftermath of a successful CCMC which has quickly lead to settlement.

Weightmans adopt a collaborative approach to this new feature of litigation. The expertise of our Costs team compliments the tactical analysis of our litigators. We are also exploring the use of Management Information as resource to inform our challenges of costs budgets. We have already experienced some excellent results and this is only expected to improve when we start to see the outcome of the detailed assessment hearings in costs budgeting cases.